BBA Says Vickers Plans May Hurt Economy as Osborne Prepares Law

By Gavin Finch -
Jun 13, 2012

British Bankers’ Association Chief
Executive Officer Angela Knight said plans to force lenders to
build firebreaks around their consumer units risk hurting growth
as the government prepares to publish draft legislation.

Chancellor of the Exchequer George Osborne will publish his
plans tomorrow to implement the proposals set out by the
government-appointed Independent Commission on Banking. The
proposals will take seven years to implement and may cost the
industry as much 7 billion pounds ($11 billion), the ICB said.

“If a bank has got to hold more cash and more capital,
that is money it cannot also lend,” Knight, the U.K. industry’s
top lobbyist, told a conference in London today, according to a
transcript provided by the BBA. “A growing economy requires a
vibrant banking sector to finance it.”

John Vickers, chairman of the ICB, recommended in September
that banks insulate consumer units from investment banking to
increase stability in the financial system. Bank lobbyists are
pushing the government to dilute the proposals as they move
toward being put into law. Raising capital requirements for
lenders risks reducing their profitability.

Knight said the proposed firebreaks will make it harder for
banks to offer accountholders fixed-rate mortgages and to
provide foreign-exchange hedging. The plans also risk damaging
London’s international wealth-management businesses, she said.

While domestic clients would be protected by the firewall
“international personal wealth-management would have to be
located entirely outside the ring-fence,” Knight said. “This
is nonsense. The U.K. is shooting itself in the foot and there
needs to some better thinking in that area.”